Senate Seen Turning to New Tax

By David S. BroderBy David S. BroderJanuary 28, 1986

A senior Reagan administration official said yesterday that it is likely the Senate will need to impose some form of new consumption tax and limit the deductibility of state and local taxes to balance the books on its tax-revision bill.

The official, who talked with reporters on a not-for-attribution basis, said it appears the Senate will have to find as much as $130 billion in new revenues over the next five years to offset the rate reductions the president is seeking and to make up for tax-reduction provisions some senators want to add to the bill. That sum, he said, would have to come from base-broadening or loophole-closing provisions not included in the version of tax revision passed by the House last December.

The official said administration optimism about Senate passage of the president's top-priority bill was increased by the discussion among members of the Senate Finance Committee at last weekend's committee "retreat." He conceded that "easily 85 of the 100 senators would like to duck tax revision if there were a politically acceptable way to do it . . . but no one wants to be blamed for stopping it."

President Reagan is seeking to reduce the maximum individual tax rate from 38 percent in the House bill to 35 percent and to raise the individual exemption to $2,000, at least for all low- and middle-income families. The House bill permits only a $1,500 exemption for individuals who itemize deductions and gives the $2,000 exemption to those who do not itemize.

Those changes and others sought by the administration, as well as revenue-losing changes signaled by various members of the Finance Committee, add up to a potential $130 billion shortfall over the next five years, the official said.

It could be made up if the Senate repealed the deductibility of state and local taxes, as Reagan has urged. The House rejected that suggestion, and the administration official held out little hope that the Senate would go all the way with the president's suggestion. Ending deductibility only for personal property and sales taxes, as some have suggested, would yield only $17 billion to $20 billion in five years, he said. Capping deductibility for rich taxpayers or limiting the deduction for real estate taxes would yield larger sums, but are chancier politically.

The official said about $75 billion in revenues over five years could be gained by reviving many of the smaller loophole-closing amendments that were considered but rejected by the House Ways and Means Committee. He noted, however, that many of those provisions "have high political costs for the dollars involved," suggesting that senators may be no more eager to take on these fights than the House members were.

That makes it likely, he implied, that the Senate will consider some form of consumption tax, along with partial repeal of deductibility and some of the smaller loophole-closers, in order to meet Reagan's insistence that the tax revision neither increase nor decrease federal revenue. Officially, he said, the administration still opposes any new tax, but he said "the political process" may confront the president with that as the price of passage.

The official said that either of two types of consumption taxes, a 10 cent-a-gallon tax on gasoline or a $4-a-barrel import fee on oil, could produce $50 billion over five years. He pointed out that Sen. Russell B. Long (D-La.), ranking minority member of the Finance Committee, expressed interest in a "comprehensive" energy tax, reaching all forms of fuel, which could generate larger sums.

Long and committee Chairman Bob Packwood (R-Ore.) were asked by committee members last weekend to draft a bipartisan tax-overhaul proposal as the starting point for committee consideration. The official said the clear disposition of the committee was to keep the bill revenue-neutral, as Reagan urged.